Federal Court of Appeal Decisions

Date: 20020315

Docket: A-563-00

Neutral citation: 2002 FCA 96

CORAM:       DESJARDINS J.A.

DÉCARY J.A.

NOËL J.A.

BETWEEN:

                                                             LAWRENCE WOLF

                                                                                                                                            Appellant

                                                                           and

                                                    HER MAJESTY THE QUEEN

                                                                                                                                        Respondent

                                       Heard at Montreal, Quebec, on February 11, 2002

                                 Judgment delivered at Ottawa, Ontario, on March 15, 2002

REASONS FOR JUDGMENT BY:                                                                      DESJARDINS J.A.

CONCURRING REASONS IN RESULT BY:                                                            DÉCARY J.A.

CONCURRING REASONS IN RESULT ONLY BY:                                                      NOËL J.A.

Date: 20020315

Docket: A-563-00

Neutral citation: 2002 FCA 96

CORAM:       DESJARDINS J.A.

DÉCARY J.A.

NOËL J.A.

BETWEEN:

                                                             LAWRENCE WOLF

                                                                                                                                            Appellant

                                                                           and

                                                    HER MAJESTY THE QUEEN

                                                                                                                                        Respondent

                                                    REASONS FOR JUDGMENT

DESJARDINS J.A.

[1]               Must articles 2085 and 2098 of the Civil Code of Québec and the oft-quoted principles elaborated by Lord Wright in the 1946 Judicial Committee of the Privy Council’s decision of Montreal v. Montreal Locomotive Works Ltd., [1947] 1 D.L.R. 161, which serve, in Quebec law, to distinguish a contract of employment or of services from a contract of enterprise or for services, be revisited in light of the globalization phenomena which increases the mobility of workers? 

[2]               This is the issue in this appeal.

  1. THE FACTS

[3]               The appellant is a mechanical engineer specializing in aerospace.  His first job was with Grumman in New York City, N.Y. where he worked on a military radar aircraft in the flight test program.  He was later transferred to Florida where, while working for that company, he found that virtually every aerospace company used consultants or contractors.  It involved better pay with less job security because consultants were hired to fill gaps when the workload was unusually high and where either the local employment market could not fill these gaps or the company did not want to hire additional employees and then lay them off when the workload diminished.  He observed that companies sometimes preferred to hire consultants because their contract could be terminated at any time without incurring liabilities (Examination of Lawrence Wolf before the Tax Court of Canada, Appeal Book, vol. 2, p. 16, lines 12 to 20).  The appellant became interested in finding a contracting position in order to earn a nest egg for himself and his girlfriend at the time, to whom he was engaged (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 13, line 11).

[4]               In 1990, through a corporation by the name of Kirk-Mayer of Canada Ltd. (“Kirk-Mayer”), located in Calgary, Alberta, the appellant was able to find a job with Bombardier, in St. Laurent, Quebec, a company also referred to, at that time, as Canadair Limited ("Canadair").

[5]               Kirk-Mayer had already a contract with Canadair to subcontract personnel. Canadair would send work orders to Kirk-Mayer who would in turn find the personnel required by its client Canadair (Examination of Lawrence, Appeal Book, vol. 2, p. 93, lines 10 to 21).

  a) The appellant’s contract with Kirk-Mayer

[6]               A contract was signed on January 31, 1990, between Kirk-Mayer and the appellant whereby the appellant, described as a consultant and an independent contractor, agreed to provide his services to Canadair.  The agreement provided that if, in the opinion of Kirk-Mayer and his client Canadair, the appellant did not provide his services in a workmanlike and professional manner, Kirk-Mayer could terminate the agreement.  The expected duration of the assignment was one year, renewable at Canadair’s discretion, but dependent entirely on the workload available at Canadair. 

[7]               According to the terms of the contract, Kirk-Mayer was to pay the appellant a fee of C$32 for each hour of service.  Hours worked in excess of forty hours in one week were to be paid at C$48 for each hour of service.  The appellant was also to receive a per diem of C$190 per week, based on C$38 per day per five working days while in Canada, if his permanent address was in excess of fifty miles from the client’s premises.  The appellant was paid for statutory holidays.  He was further to receive a completion bonus based on C$3 per hour for all hours worked if the contract was completed to the satisfaction of both Canadair and Kirk-Mayer.  A vacation bonus of 4% of gross fees upon termination of the contract would also be paid.  Finally, the appellant was to be reimbursed for his travel costs upon submission of a counterfoil.

[8]               The appellant testified that the additional pay for work in excess of forty hours per week was an incentive for consultants to put in heavy hours to complete the workload since consultants were precisely hired when there was a heavy workload (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 28, lines 20 to 24).  On the other hand, the completion bonus was an incentive given to the consultant to stay for the completion of the program because consultants, in general, tend to “chase the dollars”.  For instance, if there was another program in operation at Boeing or Airbus, anywhere in the world, that was paying more, consultants would leave on their own volition to work on a better paying project.  Because there was no job security, there was zero company loyalty. 

[9]               Vacation pay was given because there was no time to take a holiday during the time of the contract.  The appellant explained that he normally worked in excess of fifty-five hours a week (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 29, line 7) and was working Saturdays and even Sundays (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 32, line 4 to p. 34, line 10, p. 76, line10).  Because of the heavy workload, holidays had to be taken between contracts.  Statutory holidays were paid considering that Canadair was closed on those days and that consultants could not have gone to work even if they would have wanted to (Appeal Book, vol. 2 p. 31 line 14).

[10]           The appellant explained that while long hours were put in because the workload was heavy, it was also a way to satisfy the client, Canadair, so as not to be the first to go when came  time for the company to terminate the contract at the end of a project (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 29, line 12).  He also said that consultants usually did not have the luxury of vacations because if they took time off, it looked bad since they were not producing the work that the company needed at that moment (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 31, line 23).

[11]           The method of payment was the following: the appellant billed his hours to Canadair with a copy to Kirk-Mayer.  Canadair then paid Kirk-Mayer which in turn paid the appellant (Examination of Lawrence Wolf, Appeal Book, vol. 2, p.119, lines 7 to 14).

[12]             Kirk-Mayer would, however, deduct first its own fees.  Canada Pension Plan and Unemployment Insurance contributions together with 15% non-resident withholding taxes, if the consultant was not a resident of Canada, were also deducted pursuant to the Employers’ Guide to Payroll Deductions (Appellant’s Book of Authorities at Tab. 2).  This Revenue Canada directive indicates that:

A self-employed worker who is engaged by an agency is still considered to be insurable and pensionable employment when working under the following conditions: the agency pays the worker; and the client directs and controls the worker.  The agency has to deduct CPP contributions and EI premiums for the worker, but not income tax.  The agency has to prepare a T4 slip for the worker in the usual way.

[13]           This practice was adopted by Kirk-Mayer following Revenue Canada’s directive, as issued in a letter from a M. Kennedy, Senior Coverage Officer, dated February 8, 1988 (appellant’s Book of Authorities at tab. 7), which states:

This letter will confirm that the 1985 Court decision that Independent-Specialists engaged by a Placement Agency are self-employed for Income Tax purposes but are also included in Pensionable and Insurable earnings has not been changed.

To insure that the workers are credited with the correct amount of deductions and earnings Placement Agencies are required to issue a T4 showing the total earnings (Box C), CPP contributions (Box D) and Insurable earnings and premiums (Boxes E and H). In addition the T4 is to be notated with ‘Placement Agency - S E’ [...].

[14]           The appellant was responsible for providing insurance for medical and repatriation while in Canada.  He therefore contracted a health insurance policy with Mutual of Omaha, an American company.

[15]           The contract with Kirk-Mayer further provided that the consultant was to be paid up to four hours at the regular fee for visa renewal and be reimbursed at cost.  That was because, once a year, the appellant had to renew his work visa.  It usually involved going to the Immigration office during working hours.  Such time spent was considered to be related to his work (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 41, lines 6 to 23).

[16]            The agreement finally stipulated that to protect Kirk-Mayer’s position with clients, it was agreed that for three months after finishing work with Canadair, the appellant would not do similar work for that client.  This clause was meant to protect Kirk-Mayer’s interest and prevent a consultant from taking an employee position at Canadair considering that he was already working inside that company and could receive an offer to become an employee.  In such a case, Kirk-Mayer, which received a percentage of the appellant’s income, would lose its source of income (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 40).

[17]           Once the contract was signed, Canadair wrote to the appellant to confirm the offer of temporary assignment under the terms and conditions agreed to between the appellant and Kirk-Mayer.

  b) The appellant’s work at Canadair

[18]           The appellant reported to someone at Canadair on his first day of work.  He rented a room at a motel and later found accommodation, a downstairs room in a private home in Dollard-des-Ormeaux.

[19]           The appellant was introduced to a project supervisor  whom he referred to as "the boss".  On his first project, the appellant was working on flight test installations.  He said he worked on any specialized component needed to verify the safety required for the certification of the aircraft.  The group he was working with did not actually design the plane.  It tested the plane and assisted in having the plane certified by making the modifications necessary for the certification.  They involved, for instance, the control systems, the temperatures, the vibrations, etc. (Examination of Lawrence Wolf, Appeal Book, vol. 2, pp. 55-56).

[20]           The appellant could be asked to work on many projects at a time.  If something became urgent, he could be given additional work or moved to another project completely (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 124, lines 5 to 15).

[21]           Nobody told the appellant how to do the work he was asked to perform (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 64, lines 16 to 23, pp. 70-71, p. 123, lines 17 to 22).  Once he was given a job, he pursued it on his own.  Nobody, for instance, would tell him how to design a piece of the aircraft.  Had they known how to do it, they would not have hired someone like him (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 57).  The appellant was often called upon to interact with people both inside and outside of Canadair

[22]           To do his work, the appellant had access to a specialized computer capable of handling a considerable amount of information.  The computer, for security reasons, could not be accessed outside of Canadair’s premises.  The computer was essential for his work.  The appellant had no office or desk of his own.  He worked on the same computer if it was available.  If not, he would try to find one somewhere else on the premises (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 142, line 21 to p. 143, line 5).

[23]           The appellant had an identity card, provided by Canadair, with his name and photograph and a bar code on the back, that gave him access to the grounds and some of the buildings.  The appellant explained that a red bar was on the card to indicate that he was a consultant, something the employees did not have on their cards (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 130, line 13 to 25).  He also testified that, as opposed to regular employees of Canadair, he was not “kept in the loop” as to what went on at the company since he did not receive the company newsletter sent to employees and could not attend meetings where the company’s plans were discussed and where the employees were told how they fitted into those plans.  He further indicated that, as a contractor, he did not qualify, as did employees, to take courses in order to further his education (Examination of Lawrence Wolf, Appeal Book, vol. 2, at pp. 78-79).

[24]           The work had to be performed as readily as possible so as to meet specific goals.  The appellant had access to the archives at Canadair which contained drawings of similar jobs done in the past.

[25]           The appellant explained that a person like himself could expect to be called on later, even  two to three years after the completion of a contract, but while still working for Canadair, to explain what work he had specifically done or to redesign a certain component he had worked on (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 69, line 18 to p. 70, line 5).  However, he specified that once consultants leave the company, it is not possible to use them for this purpose anymore (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 70, line 18).

[26]           The appellant was asked what risks he was facing in his work.  He replied he never knew when his job would be finished, he had no promise of future engagement, no pension, no employee benefits and no stock options (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 73, line 21).

[27]           Considering the number of projects in progress at the time, Canadair had thousands of consultants working on a variety of temporary assignments.  A few hundreds could work on one project alone.  They came from all over the world, primarily from developed westernised countries such as the United States, England, Germany, Switzerland and Canada, from Sweden occasionally, then Brazil and Indonesia  (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 115).

[28]           The appellant’s contract  was renewed until 1995, during which time he worked on nine projects.  However, the appellant explained that he was let go by Canadair a few times between the initial contract and 1995, and that his contract was renewed only because he managed to find work in other departments of the company (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 81, line 1 to p. 84, line 22).   His contract was periodically revised to raise the regular and overtime hourly fee and the per diem fee.  On the other hand, he no longer received vacation pay as shown in his contract signed on August 23, 1993, and he was no longer paid for holidays or vacation shutdown of the client, unless authorized to render services on those days.  All statutory holidays were however still paid.

[29]           When the time came to terminate the contract, Canadair wrote to Kirk-Mayer asking the agency to inform the appellant of the decision taken.

  c) The tax assessments

[30]           In assessing the appellant for the taxation years 1990 through 1995, the Minister disallowed the deduction of business expenses claimed (more particularly lodging and travel expenses) on the basis that the appellant earned employment income and not business income during those years.  The Minister estimated that the appellant was a resident of Canada during the years at issue.

[31]           The appellant challenged these assessments alleging that he remained a citizen and a resident of the United States of America and that, according to article IV of the Canada-U.S. Income Tax Convention (1980) (the “Convention”) as amended, he was not, for tax purposes, considered to be a resident of Canada during the years at issue.  The appellant also submitted that he was working in Canada as an independent contractor during those years.  He relied on article XIV of the Convention and argued that his income was taxable in the United States and not in Canada considering that he did not have a fixed base regularly available to him in Canada.

  2. THE DECISION OF THE TAX COURT OF CANADA

[32]           The Tax Court judge (see Wolf v. Canada, [2000] T.C.J. No. 696 (Q.L.)) concluded that the appellant was at all times a resident of the United States.  Her conclusion on this point is not challenged in this appeal.  She also concluded that the appellant was not an independent contractor but an employee of Kirk-Mayer, when he worked for Canadair.  Her reasons to so conclude may be found in paragraphs 25, 26, 27, 28 and 29 of her reasons for judgment which I reproduce in full:

[25] Although the appellant is a professional who was hired for his expertise and his knowledge, I am of the view that some kind of control was exercised over the appellant’s work. He testified that he was assigned his work by a supervisor at his workplace and that he could be switched from one project to another at the supervisor’s request. The appellant also testified that his work had to be approved by different committees and that for specific difficult projects there was closer supervision by Canadair.

[26] It was the appellant’s personal professional services that were made available to Canadair (there is no evidence that the appellant could delegate his work to someone else). The appellant’s work was done on a continuing, day-to-day basis, and no set or specified amount of work was assigned to him by contract. Applying the specific result test, one cannot but conclude that the appellant was an employee. Furthermore, it is admitted that although the appellant could choose his hours of work, he was expected to be there during normal working hours to interface with people at Canadair.

[27] It is true that the appellant was not provided with health insurance benefits or a pension plan and received no vacation pay (except for statutory holidays). But in my view, this is not sufficient to override the conclusion that the appellant was in fact an employee. Furthermore, there are other aspects that tend to show the existence of an employer-employee relationship. The appellant was paid for all his hours worked and overtime was paid at a higher rate under his agreement. All statutory holidays were paid even though the appellant did not work on those days. He was entitled to a completion bonus if he performed well. None of this is characteristic of a contract for services. A provider of services will fix his price and will not be remunerated at a higher rate of overtime. He must bear the risk of lower profit if he has to work overtime. In the present case, the appellant bore no such risk. He was paid no matter what. The fact that the appellant was signing temporary agreements does not change my conclusion. Indeed, it is not the duration of the agreement which determines whether there is employment.

[28] Finally, the appellant was working with tools belonging to Canadair in Canadair offices or workshops. All his comings and goings, his working hours and days were integrated with the client’s operations. It cannot be said in the present case that the appellant was operating his own business. In his own words, contained in the insurance policy filed in evidence by him (Exhibit A-11), he was a job shopper and his employer was Kirk-Mayer. He did not consider himself to be an independent contractor. Before coming to Canada, he was an employee of Grumman and, in my view, he was an employee of Kirk-Mayer when he worked for Canadair (see Hinkley v. M.N.R., 91 DTC 1336, referred to by counsel for the respondent). I am comforted in this conclusion by the fact that Kirk-Mayer also considered the appellant to be its employee. Indeed, it issued T-4 slips to the appellant, who reported employment income, and all deductions at source were made. If I apply the reasoning of counsel for the appellant, namely that it is the intention of the parties that should govern from a legal standpoint, there is an indication here that Kirk-Mayer treated the appellant as an employee and not as an independent contractor.

[29] I therefore conclude that the appellant has not shown on a balance of probabilities that he was acting as an independent contractor during the years at issue. The appellant was an employee. In view of this conclusion, it is not necessary for me to determine whether the appellant had a fixed base regularly available to him in Canada within the meaning of article XIV of the Canada-U.S. Income Tax Convention, as that article does not apply to employees.

[33]           Considering her conclusion that the appellant had the status of employee with Kirk-Mayer  when working for Canadair, the Tax Court judge said she did not need to pronounce on whether the appellant had a fixed base regularly available to him within the meaning of article XIV of the Convention.

  3. THE RELEVANT LEGISLATION

[34]           The Canada-U.S. Income Tax Convention (1980) was enacted as Schedule I to the Canada-United States Tax Convention Act, 1984, S.C. 1984 c. 20.  The preamble to this Convention states:

Canada and the United States of America, desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, have agreed as follows:[...]

                                                                                      [My emphasis]

[35]           Article XIV of the Convention, on which the appellant relies, provides:

                                                                                      [My emphasis]

[36]           The articles of the Civil Code of Québec relied on by the Tax Court judge came into force on January 1, 1994.  Since the case at bar is concerned with the taxation years 1990 to 1995 inclusively, the Civil Code of Lower Canada applied for the years previous to the adoption of the Civil Code of Québec.  According to the commentaries made by the Minister of Justice, the new Code simplified the former rules and incorporated solutions drawn from the case law (Commentaires du ministre de la Justice, vol. 2, p. 694 - chapitre septième).  Since no fundamental changes were made with the adoption of the new Code, the provisions of the new Code only will be reproduced:

                                                                                     [My Emphasis]

 4. THE ISSUE IN THIS APPEAL

[37]           Article XIV of the Convention provides that an individual who is resident of a Contracting State may have his income taxed in that State in respect of independent personal services.  Such income may also be taxed in the other Contracting State if the individual has or had a fixed base regularly available to him in that State, but only to the extent the income is attributable to the fixed base.

[38]           Three elements must therefore be considered in applying article XIV of the Convention:

 a) the residence qualification of an individual;

 b) whether the services he offers are independent personal services;

 c) whether the individual has a fixed base regularly available to him in the Contracting State other than the one of his residence.

[39]           The respondent, as stated earlier, does not challenge in this appeal the finding of the Tax Court judge that the appellant is and was, at the relevant time, a U.S. resident.  The respondent concedes, moreover, on the basis of the decision of this Court in Dudney v. The Queen 99 D.T.C. 147 (F.C.A.), that the appellant did not have a fixed base regularly available to him in Canada during the relevant period.

[40]           Since the appellant is and was at all times a U.S. resident with no fixed base regularly available to him in Canada, his income can only be taxed in Canada if he was working here under a contract of employment.  If he was an independent contractor, he can only be taxed by the U.S. authorities.

[41]           The only issue therefore is whether the appellant, at the relevant time, was an employee of  Kirk-Mayer or was an independent contractor.

  5. ANALYSIS

[42]           According to article 2085 of the Civil Code of Québec, a contract of employment is a contract by which a person, the employee, undertakes, for a limited time, to work for remuneration according to the instructions and under the direction or control of another person, the employer.  The contract may be for a fixed or undetermined term.

[43]           By contrast, a contractor or a provider of services, according to articles 2098 and 2099 of the Civil Code of Québec, undertakes to carry out physical or intellectual work for another person, or to provide a service to him, for an agreed price.  The contractor or the provider of services is free to choose the means of performing the contract and no relationship of subordination exists between the contracting parties in respect of such performance.

[44]           The Quebec courts have recognized that the key distinction between a contract of employment or of services and a contract of enterprise or for services lies with the element of subordination or control.  In Quebec Asbestos Corp. v. Couture, [1929] R.C.S. 166, a case in tort , the Supreme Court of Canada indicated at p. 169: “[l]e contrat de louage d’ouvrage se distingue du contrat d’entreprise surtout par le caractère de subordination qu’il attribue à l’employé”.  Article 2085 of the Civil Code of Québec mentions this criterion expressly (See a comment on this topic in  “Contract for Services, Contract of Services - A Tax Perspective and Analysis” by Marc Noël in “Report of Proceedings of the Twenty-Ninth Tax Conference”, 1977 Conference Report (Toronto: Canadian Tax Foundation, 1978) 712 at 724.  See also  “Le contrat de travail” by Marie-France Bich, La Réforme du Code civil, Tome 2, Les Presses de l’Université Laval, 1993, p. 741, at 752; “Droit du travail” Robert P.  Gagnon, Volume 7, Collection de droit, Les Éditions Yvon Blais Inc., 1995, p. 38).

[45]           Then came the Quebec case of Montreal v. Montreal Locomotive Works Ltd., [1947] 1 D.L.R. 161.  The issue was whether the City of Montreal was entitled to recover from the Montreal Locomotive Works Ltd. (“the company”) certain taxes which it claimed to levy under its City Charter and by-law.  The company had entered into two contracts with the Government of Canada with a view to the production of tanks and gun carriages.  The construction contract included an agreement for the sale by the company to the Government of the site on which a new plant would be built, the title of which to be held by the Crown.  The production contract provided for the production of gun carriages and tanks for the Government.  The company was entitled to incur all proper costs and was to be reimbursed by the Government.  In both contracts, it was stipulated that the company undertook to act “for or on behalf of the Government and as its agent”.

[46]           If the company was carrying on business merely as a mandatory or agent of the Government, no tax was due to the City since section 125 of the British North America Act made the Crown immune from taxation.  If, on the other hand, the company was acting on its own behalf, the tax was due.

[47]           Applying its famous fourfold test of (1) control, (2) ownership of the tools, (3) chance of profit and (4) risk of loss, which I will again refer to later on, Lord Wright, for the Judicial Committee of the Privy Council, concluded that the company was an agent of the Crown and, consequently, was immune from taxation.  He explained that the factory, the land on which it was built and the machinery were all government  property.  The company took no financial risks.  The Government kept full control over the management and operation of the plant.  Contrary to the Supreme Court of Canada, [1945] 4 D.L.R. 225, the Quebec Court of King’s Bench, Appeal Side, [1945] 2 D.L.R. 373 and the Quebec Superior Court, [1944] 1 D.L.R. 173, Lord Wright made no reference to the provisions of the Civil Code of Lower Canada for the interpretation of the contracts, although there was an express clause in both contracts which read “This agreement shall be in all respects subject to and interpreted in accordance with the laws of the Province of Quebec”, [1945] 2 D.L.R. 373 at 379 and at 400.  Lord Wright  referred in general terms to the case law but he, himself, did not mention the authorities he was relying on.

[48]           In Hôpital Notre-Dame de l’Espérance et Théoret v. Laurent, [1978] 1 S.C.R. 605, a case in tort, the Supreme Court of Canada was called upon to determine whether a medical doctor was an employee of the hospital where the claiming party had been treated.  Pigeon J., for the Court, cited with approval André Nadeau, "Traité pratique de la responsabilité civile délictuelle", (Montreal: Wilson & Lafleur, 1971) p. 387, who had observed that  “the essential criterion in employer-employee relations is the right to give orders and instructions to the employee regarding the manner in which to carry out his work” (pp. 613-14).  Pigeon J. then cited the famous case of Curley v. Latreille, [1929] S.C.R. 166, where it was noted that the rule was identical on this point to the common law (ibid. at pp. 613-14).

[49]           Consequently, the distinction between a contract of employment and a contract for services under the Civil Code of Québec can be examined in light of the tests developed through the years both in the civil and in the common law.

[50]           With this in mind, I now examine the recent decision of the Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] S.C.J. No.61, 2001 SCC 59, where the distinction between the two contracts was analysed at length.

  a) The formulation of the tests to be applied

[51]           Sagaz Industries, supra, is a case in tort where the legal status of a consultant had to be established, namely whether he was an employee or an independent contractor.  Major J., for the Court, noted at paragraph 36 of his reasons, that the distinction between an employee and an independent contractor applies not only in vicarious liability cases, but also to the application of various forms of employment legislation, the availability of an action for wrongful dismissal, the assessment of business and income taxes, the priority taken upon an employer's insolvency and the application of contractual rights.  One should therefore not be surprised to find a variety of cases where the distinctions between both contracts have been elaborated.

[52]           Major J. made an analysis of the various tests developed by the case law citing MacGuigan J.A. who wrote the decision of this Court in Wiebe Door Services Ltd. v. M.N.R., [1986] 3 F.C. 553.

[53]           Major J. first mentions the control test which has been criticized as having an air of deceptive simplicity (Atiyah Vicarious Liability in the Law of Torts (1967) p. 41).  He notes, at paragraph 38 of his reasons, the main problems with this test as they were set out by MacGuigan J.A. in Wiebe Door Services Ltd. at pp. 558‑59:

38. [...] A principal inadequacy [with the control test] is its apparent dependence on the exact terms in which the task in question is contracted for: where the contract contains detailed specifications and conditions, which would be the normal expectation in a contract with an independent contractor, the control may even be greater than where it is to be exercised by direction on the job, as would be the normal expectation in a contract with a servant, but a literal application of the test might find the actual control to be less. In addition, the test has broken down completely in relation to highly skilled and professional workers, who posses skills far beyond the ability of their employers to direct.

[54]           Major J. reminds us, at paragraph 39 of his reasons, of an early attempt to deal with the difficulties of the control test.  He refers to the development of a four-fold test known as the “entrepreneur test”, set out by W.O. (Later Justice) Douglas in “Vicarious Liability and Administration of Risk I" (1928-29) 38 Yale L.J. 584 and applied by Lord Wright in Montreal v. Montreal Locomotive Works Ltd., [1947] D.L.R. 161 at p. 169.

39. [...] In earlier cases a single test, such as the presence or absence of control, was often relied on to determine whether the case was one of master and servant, mostly in order to decide issues of tortious liability on the part of the master or superior. In the more complex conditions of modern industry, more complicated tests have often to be applied. It has been suggested that a fourfold test would in some cases be more appropriate, a complex involving (1) control; (2) ownership of the tools; (3) chance of profit; (4) risk of loss. Control in itself is not always conclusive.

[55]           Major J. lists thirdly, in his paragraph 40, the "organization test" or "integration test" used by Denning L.J. (as he then was) in Stevenson Jordan and Harrison Ltd. v. Macdonald and Evans, [1952] 1 The Times L.R. 101 (C.A.) at p. 111:

One feature which seems to run through the instances is that, under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it.

[56]           Major J. enumerates the drawbacks of this test at paragraph 42 of his reasons along the lines expressed by MacGuigan J.A. in Wiebe Door Services Ltd.  He agrees, however, with MacGuigan J.A. (at p. 563 of the Wiebe Door decision) that the organization test can be of assistance when properly applied, i.e. when it is approached from the persona of the "employee" and not from that of the "employer":

Of course, the organization test of Lord Denning and others produces entirely acceptable results when properly applied, that is, when the question of organization or integration is approached from the persona of the “employee” and not from that of the “employer’, because it is always too easy from the superior perspective of the larger enterprise to assume that every contributing cause is so arranged purely for the convenience of the larger entity. We must keep in mind that it was with respect to the business of the employee that Lord Wright [in Montreal] addressed the question “Whose business is it?” [Emphasis added by Major J.]

[57]           Major J. then refers to the "enterprise test" which he describes thus at paragraph 45 of his reasons:

Finally, there is a test that has emerged that relates to the enterprise itself. Flannigan, supra, sets out the "enterprise test" at p. 30 which provides that the employer should be vicariously liable because (1) he controls the activities of the worker; (2) he is in a position to reduce the risk of loss; (3) he benefits from the activities of the worker; (4) the true cost of a product or service ought to be borne by the enterprise offering it. According to Flannigan, each justification deals with regulating the risk-taking of the employer and, as such, control is always the critical element because the ability to control the enterprise is what enables the employer to take risks. An "enterprise risk test" also emerged in La Forest J.'s dissent on cross-appeal in London Drugs where he stated at p. 339 that "[v]icarious liability has the broader function of transferring to the enterprise itself the risks created by the activity performed by its agents".

[58]           Major J. cites at length at paragraph 44 of his reasons what MacGuigan J.A. had said to be the best synthesis found in the authorities, namely that of Cooke J. in Market Investigations Ltd. v. Minister of Social Security, [1968] 3 All E.R. 732 (Q.B.D.) at pp. 737-38 (followed by the Privy Council in Lee Tuig Sang v. Cheung Chi-Keung, [1990] 2 H.C. 374, per Lord Griffiths at p. 382).

[59]           Major J. then indicates at paragraph 46 of his reasons that in his opinion, there is no one conclusive test which could be universally applied to determine whether a person is an employee or an independent contractor.  Together with others, he agrees with the necessity of searching for the total relationship of the contracting parties, an advice Décary J.A. for this Court summed up thus in Canada (Attorney General) v. Charbonneau (1996), 207 N.R. 299 (F.C.A.) at 301: “we must not pay so much attention to the trees that we lose sight of the forest [...] The parts must give way to the whole.”

[60]           Major J. then concludes at paragraphs 47 and 48 of his reasons:

47. Although there is no universal test to determine whether a person is an employee or an independent contractor, I agree with MacGuigan J.A. that a persuasive approach to the issue is that taken by Cooke J. in Market Investigations, supra. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker’s activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks.

48. It bears repeating that the above factors constitute a non-exhaustive list, and there is no set formula as to their application. The relative weight of each will depend on the particular facts and circumstances of the case.

                                                                                      [My emphasis]

[61]           These words dictate the investigation I must embark on.  The factors traditionally developed by the case law have not been discarded.  They remain valid, although somewhat reformulated.

[62]           I therefore plan to examine the level of control Canadair exercised over the appellant’s activities,  the ownership of the equipment necessary to perform the work, whether the appellant hired his own helpers, and the degree of financial risk and of profit, as they relate to circumstances such as these, where an individual with specialized skills is hired by an employment agency to perform work for a third party.  I will then assess whether these factors were properly applied by the Tax Court judge in light of all the circumstances of this case.

[63]           I will summarize first, however, the appellant’s submission.

  b) The appellant’s submission

[64]           The appellant submits that he belongs to a category of temporary workers, a breed which is on the rise in Canada and in the world, which includes workers hired for short-term assignments through temporary help agencies and “own-account” self-employment such as consultants, freelancers and independent contractors.  This type of work is sometimes referred to as non-standard or temporary employment (see “Temporary Employment in Canada, Executive Summary”, The Canadian Council on Social Development, http://www.ccsd.ca/tempemp.html).

[65]           The appellant cites the Public Service Commission in its report entitled “The Future of Work: Non-Standard Employment in the Public Service of Canada”, (Research Directorate, Policy, Research and Communications Branch, Public Service Commission, March 1999), which indicates that the increase in non-standard jobs over the past two decades can be attributed to a range of factors, such as the globalization of trade, the introduction of new technologies, the volatility of international and domestic markets and the workers’ desire for autonomy and independence.  In sum, the report notes that the adoption of new competitive strategies by business organizations appears to be the primary factor behind the growth of non-standard employment that is now prevalent within industries of almost all sectors of the economy.  The recent increase in temporary employment is also said to be related to businesses trying to look for ways to lower fixed costs, including salaries, benefits and payroll taxes, and to avoid the costs of complying with minimum employment standards.  It is explained at p. 4 of the Public Service Commission’s report:

Flexibility and cost-savings appear to be prevalent reasons for the use of non-standard employees.  By hiring workers on a temporary or part-time basis, employers are able to adjust the size of their workforces to cope with fluctuations in the demand for their goods and services.  Temporary workers can be hired quickly during peak periods of business activity and easily dismissed when no longer needed, and because of their short tenure they are eligible for only minimal legal notice of dismissal and level of compensation.  This allows firms to respond quickly to market changes while avoiding the costs and risks associated with permanent employees.  Similarly, staffing flexibility can be achieved through the use of part-time workers since the number of hours worked each week can be varied to meet fluctuations in business activity.  Businesses may also gain access to specialized skills by employing workers on a temporary basis or contracting out to self-employed individuals.  This allows firms to pare down their workforces and focus on “core competencies”, while at the same time being able to acquire skills and expertise in highly specialized or rapidly changing fields.

[66]           The appellant says that the hiring of consultants is very popular and spread throughout the whole aerospace industry (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 117).  In light of the appellant’s description of Canadair’s staffing strategy, he argues that it would be reasonable to include him as part of the group characterized as “own account self-employed”.  This would point to the conclusion that he is a consultant.  That term, he says, is specifically used in his contract.

[67]           The appellant submits that absent a scam, window-dressing or other vitiatory circumstances, none of which are alleged in this case, his status is governed by his contract which describes him as a consultant and independent contractor.

[68]           He claims that the Tax Court judge was incorrect in holding that he was an employee and not an independent contractor.  He says he identified in his testimony numerous differences between himself and the Canadair employees, namely:

- he was receiving a per diem to cover his living expenses and a completion bonus, while Canadair employees were receiving none of these;

- he was prohibited from bringing visitors into the building, while Canadair employees were not under that prohibition;

- he did not qualify for supplemental training, employee trips, group insurance, pension plans, stock option plans, union rights;

- he was billing hours instead of receiving an annual salary;

- there was no income tax deduction at source;

- the 15% non-resident withholding tax, unemployment insurance and Canada Pension Plan were simply deducted according to law;

- he carried a “red bar” identity card stamping him a consultant and not an employee;

- he had no permanent work place, no specific desk and had to hunt for available computer to perform his work.

  c) Application of the tests

       i) The written contract

[69]           Article 2085 of the Civil Code of Québec states that the contract of employment is “for a limited period”.  Although no time limit is set out in article 2098 of the Code for a contract for services, it is clear, by its nature, that such a contract is limited to the time necessary to complete the work undertaken by the contractor or the provider of services.

[70]           The contract between Kirk-Mayer and the appellant indicates that the duration of the assignment was one year, renewable at the discretion of Canadair, but that it depended entirely on the workload available at Canadair.  The appellant testified that the “tour of duty” with an aerospace company for people like him usually lasted for one to two years, as it took about this amount of time to set up a design program for a new aircraft (Examination of Lawrence Wolf, Appeal Book, vol. 2, p. 18, line 17 to p. 19, line 5).

[71]           The terms of the written contract between Kirk-Mayer and the appellant will only be given weight if they properly reflect the relationship between the parties.  The following passage written by Stone J.A. in the case of Standing v. Canada (Minister of National Revenue - M.N.R.) (1992), 147 N.R. 238 (F.C.A.) is particularly significant and on point:

Regardless of what may have been the Tax Court’s appreciation of the Wiebe Door test, what was crucial to it in the end was the parties own post facto characterization of the relationship as that of employer/employee.  There is no foundation in the case law for the proposition that such a relationship may exist merely because the parties choose to describe it to be so regardless of the surrounding circumstances when weighed in the light of the Wiebe Door test.

[72]           Therefore, as said by this Court in Moose Jaw Kinsmen Flying Fins Inc. v. The Minister of National Revenue 88 D.T.C. 6099 at 6100 (F.C.A.), “[t]o formulate a decision [...] the overall  evidence must be considered taking into account those of the tests which may be applicable and giving to all the evidence the weight which the circumstances may dictate”.

  ii) The level of control

[73]           The Tax Court judge found, in paragraph 25 of her reasons, that although the appellant was a professional who was hired for his expertise and his knowledge, some kind of control was exercised over him by Canadair.  She explained that the appellant’s work was assigned by his supervisor, that he could be switched from one project to another at his supervisor’s request, that his work had to be approved by different committees and that, for specifically difficult projects, there was closer supervision by Canadair.

[74]           The control test, as it is commonly referred to, purports to examine who controls the work and how, when and where it is to be done.  In theory, if the worker has complete control over the performance of his work once it has been assigned to him, this factor might qualify the worker as an independent contractor.  On the other hand, if the employer controls in fact the performance of the work or has the power of controlling the way the employee performs his duties (Gallant v. Canada (Department of National Revenue) (F.C.A.), [1986] F.C.J. No. 330 (Q.L.), the worker will be considered an employee.

[75]           In practice, such a distinction is difficult to apply as both the worker and the employer usually hold some measure of control over the work that is performed.  A pilot hired by an air carrier, for instance, is generally an employee, although no one tells him how he should fly the plane (see Marc Noël, supra at 723-24).  A doctor working in a clinic may be an employee although he is the master of his professional conduct.  The control test can therefore be inadequate in situations like these where, because the skills and expertise of the worker exceeds those of the employer, little control or supervision can be exercised over the manner in which the work is performed.  (See Joanne E. Magee, in her article entitled “Whose Business is it? Employees Versus Independent Contractors”, (1997) 45 Can. Tax J. 584 at 596).

[76]           While the control test is the traditional civil law criterion of employment, it is often inadequate because of the increased specialization of the workforce.  The Court in Wiebe Door, supra, essentially stated that the control test, while still important, is no longer regarded as conclusive on its own.  In agreeing that there is no “magic” test to be applied, Major J. reiterates the necessity of examining the total relationship of the contracting parties in order to determine “whose business is it?”.

[77]           In the case at bar, the facts do not necessarily lead to the conclusion that a control existed between Canadair and the appellant so as to create a link of subordination between Kirk-Mayer and the appellant.  The appellant made it clear that, once he knew what was requested from him and that he had consulted those in a position to assist him, he was master of the “how to do it”.  He was free to develop his ideas as he saw fit.  The fact that an assignment was given to him does not establish a link of subordination.

[78]           The Tax Court judge, in my view, gave too much weight to the element of control.  I find such factor to be neutral in the circumstances since it was compatible with either status.  The level of control is not an adequate indicator of the nature of the parties’ relationship and does not compel an employee’s status.

[79]           The Tax Court judge considered in addition, at paragraph 26 of her reasons, what she referred to as  “the specific result test”.  The appellant, she said, was expected to work on a day-to-day basis with no specific amount of work assigned to him by contract.  The appellant, in her view, was an employee since his own professional services had to be made available and not those of someone to whom he could delegate the work to be done.

[80]           The fact that he could not delegate his work to someone else is correct.  But it does not lead necessarily to the conclusion that the appellant was an employee.

[81]           The fact that the work had to be done during normal working hours and on Canadair’s premises in order to allow the appellant to interface with others at Canadair does not, either, necessarily lead to the conclusion that the appellant was an employee.  A consultant could also have the same constraints as to hours and place of work, considering the specialized work he had to perform and the security measures in place.

  iii) The ownership of tools necessary to perform the work

[82]           This factor relates to who, of the employer or the worker, owns the assets or equipment that is necessary to perform the work.  Traditionally, if the worker owns or controls the assets and is responsible for their operation and maintenance, he would likely be considered an independent contractor.  On the other hand, if the employer owns the equipment, the worker would likely be characterized as an employee.

[83]           The Tax Court judge, in her paragraph 28, estimated that the tool factor favoured the status  of employee and that the appellant was, in fact, an employee of Kirk-Mayer when he was working for Canadair, considering the T-4 slips that Kirk-Mayer issued to the appellant.  He was, she said, “a job shopper”, an expression used by the appellant when he applied for his health insurance policy (Appeal Book, vol. 3 at p. 38).

[84]           In my view, the tools necessary for the performance of the work of the appellant constitute a neutral factor.  The appellant would have had to work on the premises of Canadair with Canadair's computer and archives whether he was an employee or an independent contractor.

[85]           The T-4 slips are not indicia that establish the status of the appellant, nor are his statement of his health insurance policy that he was a “job shopper”.  My view on this differs from that of the Tax Court Judge in her paragraph 28.  Moreover, I give no weight to the appellant’s identity card, contrary to his submission on this matter.

  iv) The degree of financial risk and the profit

[86]           The risk factor purports to examine the worker’s potential of profit and loss.  Traditionally, the independent contractor assumed the risk of loss resulting from the performance of the work, while in the case of an employee, it was the employer who would bear that burden.  An employee would not assume a financial risk as he would receive the same salary no matter what the employer’s financial results would be.

[87]           In consideration for a higher pay, the appellant, in the case at bar, took all the risks of the activities he was engaging in.  He was not provided health insurance benefits nor a pension plan by Canadair.  He had no job security, no union protection, no educational courses he could attend, no hope for promotion.  The profit and the risk factors were his.

[88]           The Tax Court judge gave little weight to the risk factor as indicated in paragraph 27 of her reasons.  She did not ask herself “whose business is it?” and “what are the financial risks taken by the worker?”

[89]           She noted that the appellant was not provided with health insurance benefits or a pension plan, or vacation pay, except, she said, for statutory holidays.  But, in her estimation, the dominant factors showing the existence of an employer-employee relationship was the fact that the appellant was paid for hours worked, that overtime hours were calculated at a higher rate and that a completion bonus was paid “if he performed well”.  Had he been a contractor or a provider of services, he would have, in her view, worked for a fixed price with no higher rate for overtime.  He would have borne the risk of lower profit if he needed to work overtime.

[90]           In concluding as she did, the Tax Court judge mistakenly noted that the appellant received no vacation pay.  He did receive them prior to August 23, 1993.  But, more importantly, she ignored the evidence given at trial that the completion bonus was given, not if the appellant worked well, but in order to encourage him to complete his work when competition came around with a better offer.  The completion bonus stresses the characteristic of the independence of the work performed by the appellant and is, in a sense, an indication that loyalty had  to be assured at a price.

[91]           The indicia of overtime pay, vacation pay and holidays are neutral in my view.  The completion bonus, the absence of health insurance and pension plan, and the whole risk factor, including the lack of any protection under provincial labour legislation, favour the status of  independent contractor.

[92]           The Tax Court judge found, in her paragraph 28, that the appellant's hours and days were integrated with Canadair’s operation.

[93]           Both Canadair’s work and the appellant’s work were integrated in the sense that they were directed to the same operation and pursued the same goal, namely the certification of the aircraft.  Considering, however, the fact that the integration factor is to be considered from the perspective of the employee, it is clear that this integration was an incomplete one.  The appellant was at Canadair to provide a temporary helping hand in a limited field of expertise, namely his own.  In answering the question “whose business is it?” from that angle, the appellant’s business stands independently.  Once Canadair’s project was completed, the appellant was, so to speak, ejected from his job.  He had to seek other work in the market place.  He could not stay at Canadair unless another project was under way.

   v) Overall assessment

[94]           Non-standard employment such as the one of the appellant, which emphasizes higher profit coupled with higher risk, mobility and independence, indicate, in my view, that the appellant correctly claimed the status of contractor or the provider of services under articles 2098 of the Civil Code of Québec.  This in turn leads to the conclusion that the appellant provided independent personal services under article XIV of the Convention.

  6. CONCLUSION

[95]           This appeal should be allowed, the decision of the Tax Court of Canada should be set aside, and the assessments for the taxation years 1990 to 1995 inclusively should be referred back to the Minister for reconsideration and reassessment on a basis consistent with these reasons.  The appellant should be awarded his costs in this Court and in the Tax Court of Canada.

                                                                                “Alice Desjardins”            

                                                                                                      J.A.

DÉCARY J.A. (Concurring in result)

[96]           I have reached the same conclusion as my colleague, Madam Justice Desjardins, but I have done so with a slightly different perspective.  I rely on the facts as she so carefully reviewed them.

[97]           The Minister has not challenged the Tax Court Judge’s finding that Mr. Wolf was a resident of the United States of America for the purposes of the Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital (“the Convention”).  (The Convention was signed at Washington, D.C. on September 26, 1980, and enacted in law in Canada by the Canada-United States Tax Convention Act, 1984, S.C. 1984, c. 20.)  The Minister has also conceded, in the appeal before this Court, rightly or wrongly, that Mr. Wolf did not have a fixed base regularly available to him in Canada.  The sole issue left to be decided in this appeal is therefore whether the income derived by Mr. Wolf was “in respect of independent personal services” within the meaning of Article XIV of the Convention or “in respect of dependent personal services” within the meaning of Article XV.  If Article XIV applies, Mr. Wolf will not be taxed in Canada.

[98]           Articles XIV and XV read as follows:

[99]           As mandated by subsection 10(1) of the Official Languages Act (R.S.C. 1985, c. 31 (4th Supp.)), the Government of Canada ensured that the Convention was “authenticated in both official languages” of Canada.  The penultimate paragraph of the Convention expressly states that the Convention was “done in the French and English languages, each text being equally authentic”.  The applicable rule of interpretation is, therefore, that expressed more than a century ago by J.B. Moore, A treatise on extradition and interstate rendition, Boston, Boston Books Co., 1891, vol. 1, no. 88, p. 100:

Where a treaty is executed in two or more languages, those of the respective contracting parties, each text is regarded as an original, and as intended to convey the same meaning as the other.

(see Beaupré, Interprétation de la législation bilingue, Montréal, Wilson-Lafleur, 1986, at 94ff; P.G.C. c. Mekies et P.G. du Québec, [1977] C.A. 352 (Que. C.A.)).

[100]       Article III, 2 of the Convention provides that any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under Canadian law concerning taxes imposed by the Government of Canada.  As the terms “Independent Personal Services (“Professions indépendantes”) and “Dependent Personal Services” (“Professions dépendantes”) found, respectively, in Articles XIV and XV, are not defined in the Convention, their meaning is the one they have under Canadian law.

[101]       The expression “Personal Services” is rendered in the French text by the expression “Professions”.  At first blush, and in common parlance, “Professions” might appear to have a more restrictive and somehow more elitist meaning (see, for example, “société professionnelle” as defined in subsection 248(1) of the Income Tax Act) than its English counterpart, “Personal Services”.  “Professions”, however, is also, and primarily, defined in Le Nouveau Petit Robert, Dictionnaire de la langue française, Paris, 1993, as “occupation déterminée dont on peut tirer un moyen d’existence – métier; fonction; état” and I am satisfied that this wider meaning is the one that best reflects the intent of the drafters of the Convention.  I note that in Article XV, which deals with “Professions dépendantes”, the words “emploi” and “emploi salarié” are used and such words are clearly associated with individuals commonly referred to as “employees”.  Interestingly, the words “Personal Services” are precisely those found in Article 1666 of the Civil Code of Lower Canada (in force at the time the Convention was entered into) and were there used in the English text to describe services rendered by employees.  It can safely be said, in my view, that Article XIV refers to income derived from contracts for services (independent contractors) and Article XV to income derived from employment contracts.

[102]       Turning now to the interpretation of the concepts of “independent contractors” and “employees” in regard to a contract executed in Canada, one is to be reminded that common law rules will apply if the contract at issue is to be interpreted in accordance with the laws of a province other than Quebec and that the Civil Code of Quebec will apply if the contract at issue is to be interpreted in accordance with the laws of the Province of Quebec (see St-Hilaire v. Canada (Attorney General), [2001] 4 F.C. 289 (C.A.), at para. 38ff; the Federal Law-Civil Law Harmonization Act, No. 1, S.C. 2001, c. 4; the Interpretation Act, ss. 8.1 and 8.2, as amended by section 8 of the Federal Law-Civil Law Harmonization Act, No. 1).

[103]       Interestingly, in the case at bar, the original contracts at issue involve three parties and were executed by each of them in three different locations.  On January 26, 1990, Canadair Limited (“Canadair”), a company operating in St-Laurent, Province of Quebec, sent the following letter to Mr. Wolf at an address in Northport, New York, U.S.A.:

This letter is to confirm the offer of temporary employment as an Instrumentation Designer in our Experimental Engineering Department for a period of approximately twelve (12) months.

This offer is limited to all terms and conditions as established by Canadair appearing on the contract you have previously signed with your agent.

We hope your assignment at Canadair will be a pleasant one and we look forward to meeting you.

                                                                                                  (Appeal Book, vol. 3, p. 64)

[104]       The “contract” referred to in Canadair’s letter is a contract between Mr. Wolf and Kirk-Mayer of Canada Limited (“Kirk-Mayer”) which was executed by Mr. Wolf in Palm Bay, Florida, U.S.A., on January 31, 1990 and by Kirk-Mayer in Calgary, Province of Alberta, on January 25, 1990 (Appeal Book, vol. 3, p. 18).

[105]       The contract between Mr. Wolf and Kirk-Mayer was subsequently renewed on three occasions.  The renewals were executed by Mr. Wolf in Montréal, Province of Quebec, and by Kirk-Mayer in Calgary, Province of Alberta (Appeal Book, vol. 3, pp. 77, 80 and 83).

[106]       The case was argued on the basis that the same law was to apply to the series of contracts and that the applicable law was that of Quebec.  The Tax Court Judge applied the provisions of the Civil Code of Quebec.  She rightly did so.  While it could be technically argued that the initial contract between Mr. Wolf and Kirk-Mayer was not executed in Quebec, the contractual reality of the parties is that the offer originated in Quebec, that it was with respect to a contract to be performed in Quebec and that the income at issue was derived by Mr. Wolf in Quebec.  Admittedly, the Minister’s allegation is that Mr. Wolf had an employment contract with Kirk-Mayer (Appeal Book, vol. 1, p. 82), but as we shall see, it is simply not possible to determine the true nature of the contractual relationship between Mr. Wolf and Kirk-Mayer without taking into consideration the working relationship between Mr. Wolf and Canadair.

[107]       In applying the Civil Code to this case, one must appreciate that for the first four fiscal years at issue (1990, 1991, 1992 and 1993), the applicable law was the Civil Code of Lower Canada, and particularly articles 1666 to 1697, and for the last two fiscal years at issue (1994 and 1995), the applicable law was the Civil Code of Quebec, and particularly articles 2085 to 2129.  The Civil Code of Quebec came into force in January 1994.

[108]       In the former Civil Code, the employment relationship was described as “personal services of workmen” and the independent contractor relationship was essentially described in terms pertaining to “works by estimate and contract” (art. 1666), the undertaking party, in the latter case, being expected to “either furnish labour and skill, or also furnish materials” (art. 1683).  Both types of contracts were dealt with in the same chapter entitled “of the lease and hire of work” and in a somehow summary fashion, with the result that the courts were called upon to fill the gaps, especially as society was evolving and new types of “work” were  emerging.

[109]       In the present Civil Code, the terms used have been considerably refined and distinct chapters deal, respectively, with the “contract of employment” (art. 2085 to 2097) and with the “contract of enterprise or for services” (art. 2098 to 2129).

[110]       Article 2085 provides that a contract of employment

[111]       Article 2098 provides that a contract of enterprise or for services

Article 2099 goes on to say that

[112]       It is safe to say, as found by Desjardins J.A., that the provisions of the new Code, while much more detailed, do not substantially alter the previous state of the law in Quebec; that what fundamentally distinguishes a contract for services from a contract of employment is the absence in the former of a “relationship of subordination” between the provider of services and the client (art. 2099 C.C.Q.) and the presence in the latter of the right of the employer to “direct and control” the employee (art. 2085 C.C.Q.); that the very same services may be provided under either type of contract; that in either type of contract the necessary tools may be provided by the hiring person (art. 2103 C.C.Q.); and that the legal characterisation of either type of contract is determined in each case by the terms of the contract and by the circumstances (see Sauvé v. Canada (Minister of National Revenue), 1995 F.C.A. No. 1378, October 17, 1995; Canada (Attorney General) v. Charbonneau (1996), 207 N.R. 299 (F.C.A.); Pierre Cimon, Le contrat d’entreprise ou de service, Articles 2098 à 2129 – La réforme du Code civil (Québec, Qc: Presses de l’Université Laval, 1993), vol. 2, p. 802ff; Marie-France Bich, Le contrat de travail, Articles 2085-2097 C.c.Q., ibid., p. 743ff; François Beauchamp, Les contrats relatifs aux services, Droit spécialisé des contrats (Cowansville, Qc: Yvon Blais, 1999), vol. 2, p. 107ff; Baudouin-Renaud, Code civil du Québec Annoté (Montréal, Qc: Wilson-Lafleur, 2000), 3rd ed., p. 2421ff; Bonhomme-Gascon-Lesage, Le contrat de travail en vertu du Code civil du Québec (Cowansville, Qc: Yvon Blais, 1994), p. 3ff; Robert P. Gagnon, Le droit du travail du Québec (Cowansville, Qc.: Yvon Blais, 1993), 2nd ed., p. 39ff; Pierre Ciotola, Droit civil québécois (Montréal, Qc: Publications DACFO, 1993), vol. 5).

[113]       My colleague has explained through the case law how a contract of employment is to be distinguished from a contract for services.  Whether one adopts the words I used in Charbonneau, supra,

We must not pay so much attention to the trees that we lose sight of the forest...  The parts must give way to the whole.

                                                                                                                              (At p. 301)

those used by MacGuigan J.A. in Wiebe Door Services Ltd. v. Minister of National Revenue, [1986] 3 F.C. 553 (F.C.A.),

What must always remain of the essence is the search for the total relationship of the parties.

                                                                                                                              (At p. 563)

or those used by Major J. in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59,

The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account.

                                                                                                                           (At para. 47)

one ends up in the final analysis, in civil law as well as in common law, looking into the terms of the relevant agreements and circumstances to find the true contractual reality of the parties.

[114]       I appreciate that, in Sagaz, Major J. stated that “the level of control the employer has over the worker’s activities will always be a factor” (at para. 47), but his further statement that

It bears repeating that the above factors constitute a non-exhaustive list, and there is no set formula as to their application.  The relative weight of each will depend on the particular facts and circumstances of the case.

                                                                                                                           (At para. 48)

evidences his disinclination to set out in absolute terms specific requirements that may not be tailored to fit all circumstances.  There may well be cases where looking at the parts rather than at the whole will distort reality.  This case may indeed be one of them, the control factor having been found by Madam Justice Desjardins, and rightly so, to be neutral.  I may add that I find it somehow puzzling that “control” is listed amongst the factors to be considered in an exercise the purpose of which is precisely, under the Civil Code of Quebec, to determine whether or not there is control.

[115]       As a starting point, I would like to quote the very first paragraph of an article written by Alain Gaucher (A Worker’s Status as Employee or Independent Contractor, 1999 Conference Report of Proceedings of the 51^st Tax Conference of the Canadian Tax Foundation, p. 33.1):

In an ever-changing Canadian economy, the legal relevance of a worker’s status as independent contractor or employee continues to be important.  The issues relating to employment status will only increase in importance as employers continue to move toward hiring practices that favour independent contractors and a greater number of individuals enter or re-enter the work force as independent contractors.

                                                                                                                 [Footnote omitted]

[116]       In the same vein, it is my view that the existence of a tripartite agreement, or, put in other words, the presence of an intermediary between the person who hires and the person who performs the work, does not affect the legal characterization of the services rendered.  Beauchamp (supra, at p. 112) and Cimon (supra, at p. 804) both express the view that in contracts for services, there may be two clients involved where the beneficiary of the services is a person other than the payer.  The following observation by Cimon, at p. 804, is particularly apposite:

23.  De fait, le « client » peut donc être deux personnes distinctes, soit celle qui bénéficie du service et celle qui le commande et s’oblige à en payer le prix.

24.  La définition de « client » doit être interprétée de façon libérale et cette notion recouvre ces deux réalités.  Elle peut donc regrouper plusieurs personnes distinctes agissant en des qualités différentes et dont les droits et obligations doivent être évalués en conséquence.

[117]       The test, therefore, is whether, looking at the total relationship of the parties, there is control on the one hand and subordination on the other.  I say, with great respect, that the courts, in their propensity to create artificial legal categories, have sometimes overlooked the very factor which is the essence of a contractual relationship, i.e the intention of the parties.  Article 1425 of the Civil Code of Quebec establishes the principle that “[t]he common intention of the parties rather than the adherence to the literal meaning of the words shall be sought in interpreting a contract”.  Article 1426 C.C.Q. goes on to say that “[i]n interpreting a contract, the nature of the contract, the circumstances in which it was formed, the interpretation which has already been given to it by the parties or which it may have received, and usage, are all taken into account”.

[118]       We are dealing here with a type of worker who chooses to offer his services as an independent contractor rather than as an employee and with a type of enterprise that chooses to hire independent contractors rather than employees.  The worker deliberately sacrifices security for freedom (“the pay was much better, the job security was not there, there were no benefits involved as an employee receives, such as medical benefits, pension, things of that nature...” Mr. Wolf’s testimony, Appeal Book, vol. 2, p. 24).  The hiring company deliberately uses independent contractors for a given work at a given time (“it involves better pay with less job security because consultants are used to fill in gaps when local employment or the workload is unusually high, or the company does not want to hire additional employees and then lay them off.  They’ll hire consultants because they can just terminate the contract at any time, and there’s no liabilities involved”, ibid., p. 26).  The hiring company does not, in its day-to-day operations, treat its consultants the same way it treats its employees (see para. 68 of Madam Justice Desjardins’s reasons).  The whole working relationship begins and continues on the basis that there is no control and no subordination.

[119]       Taxpayers may arrange their affairs in such a lawful way as they wish.  No one has suggested that Mr. Wolf or Canadair or Kirk-Mayer are not what they say they are or have arranged their affairs in such a way as to deceive the taxing authorities or anybody else.  When a contract is genuinely entered into as a contract for services and is performed as such, the common intention of the parties is clear and that should be the end of the search.  Should that not be enough, suffice it to add, in the case at bar, that the circumstances in which the contract was formed, the interpretation already given to it by the parties and usage in the aeronautic industry all lead to the conclusion that Mr. Wolf is in no position of subordination and that Canadair is in no position of control.  The “central question” was defined by Major J. in Sagaz as being “whether the person who has been engaged to perform the services is performing them as a person in business on his own account”.  Clearly, in my view, Mr. Wolf is performing his professional services as a person in business on his own account.

[120]       In our day and age, when a worker decides to keep his freedom to come in and out of a contract almost at will, when the hiring person wants to have no liability towards a worker other than the price of work and when the terms of the contract and its performance reflect those intentions, the contract should generally be characterised as a contract for services.  If specific factors have to be identified, I would name lack of job security, disregard for employee-type benefits, freedom of choice and mobility concerns.

[121]       In the end, I have reached the conclusion that the income received by Mr. Wolf was income received as a provider of independent personal services within the meaning of Article XIV of the Convention.  I would dispose of the appeal in the same way as Madam Justice Desjardins.

                                                                                                                                   “Robert Décary”           

                                                                                                                                                      J.A.

NOËL J.A.  (Concurring in result only)

[122]       I too would allow the appeal. In my view, this is a case where the characterization which the parties have placed on their relationship ought to be given great weight. I acknowledge that the manner in which parties choose to describe their relationship is not usually determinative particularly where the applicable legal tests point in the other direction. But in a close case such as the present one, where the relevant factors point in both directions with equal force, the parties’ contractual intent, and in particular their mutual understanding of the relationship cannot be disregarded.

[123]       My assessment of the applicable legal tests to the facts of this case is essentially the same as that of my colleagues. I view their assessment of the control test, the integration test and the ownership of tool tests as not being conclusive either way. With respect to financial risk, I respectfully agree with my colleagues that the appellant in consideration for a higher pay gave up many of the benefits which usually accrue to an employee including job security. However, I also agree with the Tax Court Judge that the appellant was paid for hours worked regardless of the results achieved and that in that sense he bore no more risk than an ordinary employee. My assessment of the total relationship of the parties yields no clear result which is why I believe regard must be had to how the parties viewed their relationship.

[124]       This is not a case where the parties labelled their relationship in a certain way with a view of achieving a tax benefit. No sham or window dressing of any sort is suggested. It follows that the manner in which the parties viewed their agreement must prevail unless they can be shown to have been mistaken as to the true nature of their relationship. In this respect, the evidence when assessed in the light of the relevant legal tests is at best neutral. As the parties considered that they were engaged in an independent contractor relationship and as they acted in a manner that was consistent with this relationship, I do not believe that it was open to the Tax Court Judge to disregard their understanding (Compare Montreal v. Montreal Locomotive Works Ltd., [1947] 1 D.L.R. 161 at 170).

[125]       I would allow the appeal with costs.

                                                                                                                                        “Marc Noël”                  

                                                                                                                                                      J.A.